Tuesday, April 26, 2011

A Focus on Russia

In this guest post, I am pleased to turn it over to Robert Wieck (a high school classmate - Elkhart Lake (WI) Class of '93 - Go Resorters!).

Robert is currently the Forensic Audit Senior Manager (Europe, Middle East and Africa) for Oracle Corporation and is based in Bucharest, Romania. He has thirteen years of experience in both “Big 4” and US listed multi-national companies. Twelve of these years have been focused on emerging markets including countries in the former Soviet Union, former Yugoslavia, and the Balkan region.

Robert participated as a panelist at the “3rd Annual Anti-Corruption Summit for Russia & CIS” held on March 16-17th in Moscow. See here for the prior post regarding Assistant Attorney General Lanny Breuer's comments at the event.

Below is Robert's guest post and the opinions expressed below are his own and do not necessarily reflect the opinion of his employer, Oracle Corporation.

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"I think it is clear to most people that the current business climate in Russia is troublesome for multi-national companies trying to do business legitimately. Presentations and discussions held at the conference seemed to confirm that companies are becoming increasingly concerned about being able to do business successfully in Russia and at the same time maintaining compliance with the FCPA.

One interesting point which I believe set the tone for the conference was that while the DoJ accepted the invitation for two senior officials (Mr. Breuer and Mr. Andres) to travel to Moscow to address the conference attendees, there were no Russian counterparts from the Russian Ministry of Justice present to advise on what they are doing to address the corruption problems on the ground in Russia.

While the transcript for Mr. Breuer’s speech is linked above, Mr. Andres’s comments are summarized below:

• Russia is clearly not the only place in the world where corruption is a problem. There have been a considerable number of prosecutions of US Citizens under the FCPA.

• There have been a record number of prosecutions under the FCPA in 2010, and more than 1 Billion USD in fines collected as a result. According to Mr. Andres, none of these cases involved a single, low level act of corruption or bribery, but systematic corruption involving hundreds of thousands of dollars, and involving dozens of people.

• While there were a record number of prosecutions in 2010, there were also a record number of cases that the DoJ declined to prosecute. Decisions to decline to prosecute a case were made based on a company’s ability to demonstrate that they have sound internal procedures and compliance programs. Andres believed this also highlights the benefits of companies self-reporting potential FCPA violations, and further mentioned that self-disclosure was an important factor in how many of those cases were resolved.

• There has been an uptick in the number of individuals being prosecuted under the FCPA, which totaled 50 for 2009 and 2010. This is up from 2 individuals prosecuted in 2004.

• In terms of FCPA trends for the future, Andres noted that it appears more companies are cooperating with the DoJ. More industry-wide prosecutions are being undertaken where they find that activities that violate the FCPA are not confined to one company within an industry, but represent an industry practice that multiple companies within the industry are all engaging in. The DoJ has noted increased cooperation with national law enforcement agencies and international organizations (including the OECD).

• Companies continue to criticize the DoJ for not providing enough guidance regarding their approach to FCPA prosecutions. However, Mr. Andres stated that the DoJ does a good job in maintaining the FCPA compliance website where a wealth of case information is published and available for review.

• Currently there is much debate ongoing about the definition of a public sector official, and the DOJ continues to see an increasing number of litigations surrounding the interpretation of who is a "foreign official" under the provisions of the FCPA.

• Andres believes the trend of increasing prosecutions under the FCPA will continue, and that the DoJ has added resources to address this trend.

Among the most interesting comments made by Mr. Andres, from my point of view, were his final comments in which he stated that the DoJ is demanding the same level of compliance with the FCPA from Russia as it does from other countries. He further stated that there would not be any “Russia-specific exception” when pursuing prosecutions under the FCPA.

One other interesting presentation was delivered by the General Director for Transparency International, Ms. Elena Panfilova. In what I consider a brutally honest way, she confirmed that based on research conducted by her team on the ground in Moscow, the fraud and corruptions problems in Russia are indeed getting worse, despite information that might suggest otherwise. The schemes used by these perpetrators are becoming more and more complex and they no longer appear to be shy about engaging in corruption. This has resulted in a diminished sense of public trust and led to a very cynical environment in Russia in regards to corruption. Ms. Panfilova believes that one of the barriers to reversing this trend is the lack of whistleblower protection for people reporting alleged cases of corruption. Whistleblowers currently have no guarantees of support from anyone when they raise concerns. And usually when people do report instances, whistleblowers become targets of unfounded prosecution. To demonstrate her point, she made reference to statistics which suggest that while corruption is on the rise, the number of whistleblowers making claims is decreasing. It is understood that the role of the whistleblower is critical in the fight against corruption. Thus, legal protection from prosecution (both civil and criminal), protection of property and labor rights (anti-retaliation legislation) is required in order to allow whistleblowers to come forward and voice their concerns regarding corrupt activities they might have witnessed or been a victim of.

My participation in the panel discussion covered best practices in conducting investigations in Russia. Over my twelve years of experience working in emerging markets in Europe (including Russia and CIS), I have noted common themes that should be considered while trying to conduct an audit or investigate potential misconduct in Russia (and any emerging market, for that matter). One aspect would be the high risk of document falsification in the Russian environment. In Russia, a “form over substance” approach is taking to maintain supporting documentation for transactions. Thus, in the context of an audit or investigation, the audit objectives should be managed carefully in order to ensure documentation is not “custom” prepared. Another aspect is the sometimes difficult task of getting complete/honest answers to questions or queries. It is common to receive conflicting stories and different versions of answers to the same question, sometimes for no apparent reason. A Russian celebrity summed it up in a Russian newspaper article I read recently by saying “For some reason, it's not the custom to tell the truth in our country, even when it is clear to everyone”. Lastly, I would say that securing full cooperation from auditees can be a tedious and exhausting process. It can only be recommended that companies use legal resources (both internal and external) when necessary, in order to ensure that they receive cooperation which might be required in the form of an employment agreement, internal code of conduct or other type of contract (in the case of third parties)."